[Federal Register Volume 60, Number 103 (Tuesday, May 30, 1995)]
[Notices]
[Pages 28198-28200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13079]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--21091; 812-9554]
Nations Fund, Inc., et al.; Notice of Application
May 23, 1995.
agency: Securities and Exchange Commission (``SEC'').
action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: Nations Fund, Inc., Nations Fund Trust, Nations Fund
Portfolios, Inc. and The Capitol Mutual Funds (collectively, the
Investment Companies''), and NationsBank, N.A. (the ``Adviser'').
relevant act sections: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 18(f)(1), 22(f), and 22(g) and
rule 2a-7 thereunder, under sections 6(c) and 17(b) of the Act for an
exemption from section 17(a)(1), and pursuant to rule 17d-1 under the
Act.
summary of application: Applicants request an order that would permit
the Investment Companies to enter into deferred compensation
arrangements with their directors.
filing date: The application was filed on March 28, 1995.
hearing or notification of hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 19, 1995,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, Marco E. Adelfio, Morrison & Foerster, 2000
Pennsylvania Avenue, N.W., Washington, D.C. 20006.
for further information contact: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
supplementary information: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. Each Investment Company is a registered open-end management
investment company comprised of several investment portfolios. Nations
Fund trust and Capitol Mutual Funds are organized as Massachusetts
business trusts. Nations Fund, Inc. and Nations Fund Portfolios, Inc.
are organized as Maryland corporations. The Adviser serves as the
investment adviser for each investment portfolio of each Investment
Company. Applicants request that the proposed relief apply to the
Investment Companies and all subsequent registered open-end investment
companies advised by the Adviser (such registered open-end
[[Page 28199]] investment companies, together with the Investment
Companies, are referred to collectively as the ``Funds'').
2. The board of directors of each Investment Company currently
consists of seven persons, five of whom are not ``interested persons''
of that Investment Company. The membership of each of the boards is
identical. Each director\1\ is entitled to receive annual fees plus
meeting attendance fees from each Investment Company. The chairman of
the board receives an additional fee from each Investment Company. A
deferred fee arrangement for the directors that has been adopted by the
existing Funds is implemented through a deferred compensation plan (the
``Plan''). The purpose of the Plan is to permit individual directors to
elect to defer receipt of all or a portion of the fees otherwise
payable for their services, to enable them to defer payment of income
taxes on such fees or for other reasons.
\1\ ``Director'' refers to a trustee or director of a Fund, as
the case may be.
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3. The Plan became effective with respect to each Investment
Company upon adoption by its board of directors. The Plan was adopted
prior to the receipt of any exemptive relief requested. An exemptive
order is required for the Plan because the Funds wish to use returns on
portfolios of the Fund to determine the amount of earnings and gains or
losses allocated to a director's deferred compensation account
(``Deferral Account''); this feature will not be implemented without
the issuance of an order. Pending receipt of an order, the Plan
provides that the compensation deferred by a participant
(``Compensation Deferrals'') will be credited to the participant's
Deferral Account in the form of cash and credited with earnings in an
amount equal to the yield on 90-day U.S. Treasury Bills.
4. Under the Plan, Compensation Deferrals will be credited, as of
the date such fees would have been paid, to a separate book reserve
account established with respect to each participating Fund. The
director may select one or more investment portfolios from a list of
available portfolios of the Funds that will be used to measure the
hypothetical investment performance of the director's Deferral Account.
The value of a Deferral Account will be equal to the value such account
would have had if the amount credited to it had been invested and
reinvested in shares of the investment portfolios designated by the
director (the ``Designated Shares''). Each Deferral Account will be
credited or charged with book adjustments representing all interest,
dividends and other earnings and all gains and losses that would have
been realized had the amounts credited to such account actually been
invested in the Designated Shares.
5. A participating Fund's obligation to make payments with respect
to a Deferral Account is and will remain a general obligation of the
Fund to be made from the general assets and property of each portfolio.
With respect to the obligations created under the Plan, each director
will remain a general unsecured creditor. The Plan does not create an
obligation of any Fund to any director to purchase, hold or dispose of
any investments, and if a Fund or portfolio should choose to purchase
investments in order to exactly ``match'' its obligations, all such
investments will continue to be part of the general assets and property
of such Fund.
6. Each Fund may, and with respect to any money market fund that
values its assets by the amortized cost method will, purchase and
maintain Designated Shares in an amount equal to the deemed investments
of the Deferral Accounts. Except in the case of money market funds,
applicants expected to effect matching transactions only if
circumstances warrant, based upon a consideration of a Fund's total
assets and the amount of deferred compensation subject to the Plan.
Applicants' Legal Analysis
1. Applicants request an order that would exempt the Funds under
section 5(c) of the Act from sections 13(a)(2), 18(f)(1), 22(f), and
22(g) of the Act, and rule 2a-7 thereunder to the extent necessary to
permit the Funds to enter into deferred fee arrangements with their
directors; under sections 6 (c) and 17(b) of the Act from section
17(a)(1) of the Act to the extent necessary to permit the Funds to sell
securities issued by them to participating Funds; and pursuant to rule
17d-1 under the Act to permit the Funds to engage in certain joint
transactions incident to such deferred fee arrangements.
2. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. Section 13(a)(2)
requires that a registered investment company obtain shareholder
authorization before issuing any senior security not contemplated by
the recitals of policy in its registration statement. Applicants state
that the Plan does not give rise to any of the ``evils'' that led to
Congress' concerns. No participating Fund will be ``borrowing'' from
the directors. The Plan will not induce speculative investments or
provide opportunities for manipulative allocation of any Fund's
expenses or profits, affect control of any Fund, confuse investors or
convey a false impression as to the safety of their investments, or be
inconsistent with the theory of mutuality of risk.
3. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan sets forth any restrictions or
transferability or negotiability, and such restrictions are primarily
to benefit the participating directors and would not adversely affect
the interests of the director or of any shareholder of any Fund.
4. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. The legislative history of the Act suggests
Congress was concerned with the dilutive effect on the equity and
voting power that may result when securities are issued for
consideration that is not readily valued. The Plan would not have this
effect. Applicants believe that the Plan merely would provide for
deferral of payment of fees and thus should be viewed as being issued
not in return for services but in return for a Fund not being required
to pay such fees on a current basis.
5. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule, that would prohibit
a Fund that is a money market fund from investing in the shares of any
other Fund. Applicants believe that the requested exemption would
permit the Funds to achieve an exact matching of Designated Shares with
the deemed investments of the Deferred Fee Accounts, thereby ensuring
that the deferred fee arrangements would not affect net asset value.
6. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' under
section 2(a)(3)(C) of the Act. Applicants believe that an exemption
from this provision would not implicate Congress' concerns in enacting
section 17(a)(1) but would facilitate the matching of each Fund's
liability for Compensation Deferrals with Designated Shares that would
determine the amount of such Fund's liability. Applicants believe that
the proposed transaction satisfies the criteria of sections 6(c) and
17(b). [[Page 28200]]
7. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement without SEC approval. Under the
Plan, participating directors will not receive a benefit that otherwise
would inure to a Fund or its shareholders. Deferral of a director's
fees in accordance with the Plan would essentially maintain the
parties, viewed both separately and in their relationship to one
another, in the same position (apart from tax effects) as would occur
if the fees were paid on a current basis and then invested by the
director directly in Designated Shares.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the requested relief from rule 2a-7, any money
market Fund that values its assets by the amortized cost method will
buy and hold Designated Shares that determine the performance of
Deferral Accounts to achieve an exact match between the liability of
such Fund to pay Compensation Deferrals and the assets that offset that
liability.
2. If a Fund purchases Designated Shares issued by an affiliated
Fund, the Fund will vote such shares in proportion to the votes of all
other holders of shares of such affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13079 Filed 5-26-95; 8:45 am]
BILLING CODE 8010-01-M
